This is an obvious point.

Part of NSA’s mission, a very noble part, has always been to play digital defense. They call this “information assurance”, and describe it as “the formidable challenge of preventing foreign adversaries from gaining access to sensitive or classified national security information.” In practice, their role is much broader than that. I run NSA software — on purpose! Thank you, National Security Agency, for SELinux. I’m not worried about foreign adversaries, in particular. I just don’t want my server hacked. NSA helps evaluate and debug encryption standards that find their way into civilian use. With all the talk about 21st century cyberwarfare, about dams being made to malfunction or cars hacked to spin out of control, you’d think the best way to keep the homeland safe from terrorists and foreign adversaries would be an exceptionally secure domestic infrastructure.

However, NSA faces a conflict of mission. The organization’s more famous, swashbuckling “signals intelligence” is about maintaining a digital offense. It relies on adversaries using vulnerable systems. NSA discovers (or purchases) uncorrected “exploits” in order to break into the systems on which it hopes to spy. Normally, a good-guy “white hat” hacker who discovers a vulnerability would quietly inform the provider of the exposed system so that the weakness can be eliminated as quickly and safely as possible. Eventually, if the issue is not resolved, she might inform the broad public, so people know they are at risk. Vulnerabilities that are discovered but not widely disclosed are the most dangerous, and the most valuable, to NSA for intelligence gathering purposes, but also to cyberterrorists and foreign adversaries. There are tradeoffs between the strategic advantage that come from offensive capability and the weakness maintaining that capability necessarily introduces into domestic infrastructure. If the mission is really about protecting America from foreign threats (rather than enjoying the power of domestic surveillance), it is not at all obvious that we wouldn’t be better off nearly always hardening systems rather than holding exploits in reserve. Other countries undoubtedly tap the same backbones we do (albeit at different geographical locations and with the help of different suborned firms). Undoubtedly, passwords that nuclear-power-plant employees sloppily reuse occasionally slip unencrypted through those pipes.

Of course there is a trade-off. If security agencies did work aggressively to harden civilian infrastructure as soon as they discover vulnerabilities, the spooks would not have been able, for example, to stall Iran’s nuclear program with Stuxnet. But the same flaws that we exploited might also have been known to terrorists or foreign adversaries, who could have caused catastrophic industrial accidents in the US or elsewhere while that window was left open. Rather than applauding our clever cyberwarriors, perhaps we ought to be appalled at them for having left us dangerously exposed so that the Iranians would be too. When a cyberattack does come, via some vulnerability NSA might have patched, will we know enough to blame our cyberwarriors, or will we just shovel more money in their direction?

Before we let spy agencies make these tradeoffs for us (tradeoffs between security and security, for those who prioritize security über alles) we might want to think about institutional bias. Would it be rude to point out, given recent events, that NSA’s Power-Point-blared enthusiasm for awesome, eyes-of-the-President offensive capabilities may have eclipsed the unglamorous but critical work of running a good defense? And no, going all North-Korea with personnel is not a solution. I’m very grateful that what’s leaked has leaked, but if reports about what Snowden got are accurate, the absence of ordinary precaution is shocking. There is no irreducible danger from sysadmins that would excuse such a failure. Root access to some machines does not imply pwning the organization. I am speculating, but both Snowden’s claims of expansive access and Keith Alexander’s assessment of “irreversible damage” suggest NSA prioritized analyst convenience over data compartmentalization and surveillance of use. That’s great for helping analysts get stuff into the President’s daily briefing while avoiding blowback for, uhm, questionable trawling. It should be incredibly embarrassing to an organization whose mission is securing data.

Perhaps my speculations are misguided. The point remains. At an organizational level and at a national level, there are tradeoffs between offensive capacity (surreptitious surveillance, sabotage) and defensive security. Maintaining a killer offense requires tolerating serious weaknesses in our defense. The burgeoning, sprawling surveillance state has its own incentives that render it ill-suited to make judgments about how much vulnerability is acceptable in pursuit of an impressive offense. That shouldn’t be their call.

Sometimes the best defense is a great defense. Even if it is a lot less awesome.

Note: The trade-offs described here apply especially to covert, surreptitious means of accessing computer systems. If “we” (however constituted) decide that we want systems that are both secure and susceptible to government surveillance, we can make use of “key escrow” or similar schemes. There would be significant technical challenges to getting these right, but at least the systems could be openly designed and vetted, and could include software-enforced auditing to document use and deter abuse. Systems designed to allow third-party access will always be weaker than well-designed systems without that “feature”, but they can be made a lot more secure than systems whose flaws are intentionally uncorrected in order to enable access. It would be important to avoid implementation monocultures and centralized, single-point-of-failure key repositories. A public review process could see to that. It would not be necessary to ban alternative systems, if we wish to maintain status quo capabilities.

I’m not arguing any of this would be a good idea. But if we decide that we want data-mining or widespread surveillance, we can implement them in ways that are overt and publicly auditable rather than clandestine, insecure, and unaccountable. The status quo, a peculiar combination of lying a lot and demanding the public’s trust, is simply unsupportable.

A thing that bankers and spies have in common is protestations about how elaborately they are monitored. Every financial product or arrangement requires elaborate legal vetting, is touched by innumerable regulations, must run a gamut of refusals and reworkings in the name of “compliance”. In the current scandal over government surveillance, we hear repeated assurances that the programs are legal, that they are reviewed, that despite potentially vast loopholes in the documents thus far leaked, our security services have procedures in place to ensure that there is no abuse.

A cynic might dismiss these protestations as mere cant, but that’s a mistake. I think the insiders who offer us these assurances are perfectly, almost desperately, sincere. From their perspective, I suspect regulatory precaution seems absurdly overdone, even Kafka-esque, interfering with the good work they are trying to do. And they are trying to do good work! Most bankers are nice people working hard jobs. Most people who work for the ominous-sounding “surveillance state” genuinely strive to contribute to the security of the country without dishonoring its ideals. Large organizations are peopled by, well, people, most of whom are not so different than you and me. When organizations misbehave, it is important to understand that they do so in spite of being filled for the most part by people of good will. We should try to understand how they manage this.

One way that they manage this is by virtue of the regulation that exists ostensibly to control the misbehavior. Regulation sprouts in broad thickets, often in response to idiosyncratic events and concerns and constituencies. Pushback by the regulated trims those thickets, but not universally or uniformly. Organizations assent to and even embrace regulation that doesn’t challenge their core imperatives. They aggressively resist those that do. We end up with organizations that are, in fact, extensively and intrusively regulated, but have blind spots, weaknesses and loopholes that are not at all random.

“Core imperatives” are objectives that enable organizations to survive and thrive, and importantly to defend themselves from various sorts of challenge. Core objectives may be related to formal missions, but they are distinct, and may sometimes be in conflict. There are tensions between banks’ formal role as high-information allocators of credit to the real economy and the scale that renders failure politically intolerable. Where those tradeoffs exist, successful banks pursue the core imperative, not the formal mission. The organizational form that maximizes the quality of credit allocation would be one that keeps the organization and its stakeholders forever at risk. That form does not thrive in competition with others who gain funding advantages by insulating themselves from those risks. Like it or not, maximalist acquisition of information is a core imperative of organizations in the intelligence community. For reasons good and obvious but also for some ugly reasons, access to information is crucial to defending and expanding the intelligence ecosystem.

We should not be surprised, although we should certainly be angry, that “the toughest financial regulation in a half century” was a thousand pages long and failed to address the core problem of immunities and funding advantages that derive from scale and interconnectedness. We should not be surprised, though we should certainly be angry, that as technology has rendered surreptitious, ubiquitous surveillance easier, weak spots and loopholes have appeared that make it colorable, although still shameful, for the President of the United States to come on television and call this stuff “lawful“.

But it’s important to note, both among bankers and spies, we do not end up with an absence of regulation. Instead we end up with a festival of regulation undermined by a few strategic lacunae. And that festival of regulation is a critical part of the problem we’ve circuitously set out to address. How do organizations persuade the well-meaning humans that comprise them to work hard and feel proud of doing stuff that is ultimately not so good? Why is it that people in banking or intelligence so often effuse, with complete sincerity and no small measure of frustration, about how regulated they are, about how much care they take to comply with the regulations they face, in letter and in spirit. Because they do!

Regulation and compliance serves a straightforward human function. It substitutes for and absolves participants of the duty they would feel, as human beings, to exercise independent judgment about the nature of the work they are doing. There is nothing odd or conspiratorial about saying this. Organizations wouldn’t function if every organizational action were subject to idiosyncratic review and veto by each participant. When people claim that Edward Snowden had no right to do what he did, they do not mean to say everyone in any organization must always “just follow orders”. Their argument is based on the notion that Snowden’s organization was well-regulated, and an ethical participant in an organization ought to let the regulations of the organization stand-in for individual moral views. As we see each time one of our shameful politicians or one of our shameful bankers goes on television, lawfulness and regulation are used to legitimate organizational behavior externally. But they are used to legitimate behavior internally as well, and so may enable groups of people to do what perhaps they ought not do.

The moral choice faced in practice by members of a large organization isn’t whether some activity they participate in is ethical, but whether it is so unethical that they are compelled to substitute their own judgment for the organization’s controls and resist in some fashion. The perceived quality of the controls plays a role in those decisions. When effective participation is significantly voluntary — that is when talented people might choose to quit, or slack off, or in extremis enlist external allies to address their concerns — controls that appear to be high quality are an important organizational asset. Elaborate regulation and burdensome compliance can serve as “accountability theater” even when it is less than effective. In large organizations that do prima facie icky things, whether those things are ultimately justifiable or not, you’d expect to find a mix of very visible controls and strong economic incentives. Which, I think, you typically do. Obviously, in military and intelligence organizations, controls and incentives are supplemented by a sense of serving a larger interest that may sometimes override more ordinary qualms. But feelings of patriotism don’t eliminate participants’ need for legitimating regulation.

The most dangerous organizations are those whose participants are subject to internally credible controls that are nevertheless ineffective at constraining organizational behavior, whether because the controls are inadequate or because some groups within the organization are able to circumvent them. Unfortunately, that’s exactly the combination that serves organizations best in amoral, functional terms. We should be careful of starting with a kitchen-sink of potential regulations, then letting organizations choose their battles, as happened with banking reform. Obviously, we should be careful of letting regulated entities drive and manage the regulatory process from the start, as happened with the security state. When insiders tell us that prima facie bad things are justified by the regulations or controls under which they are produced, we should understand those accounts to be both sincere and usually mistaken. We should remember that mistargeted regulation may be worse than useless. It may provide, to use a term I learned from Bill Black, a means of neutralization that perversely enables the very misbehavior it ostensibly exists to prevent. I think that is very obviously what has happened in the US and elsewhere with state surveillance.

The stupidest framing of the controversy over ubiquitous surveillance is that it reflects a trade-off between “security” and “privacy”. We are putting in jeopardy values much, much more important than “privacy”.

The value we are trading away, under the surveillance programs as presently constituted, are quality of governance. This is not a debate about privacy. It is a debate about corruption.

Just after the PRISM scandal broke, Tyler Cowen offered a wonderful, wonderful tweet:

I’d heard about this for years, from “nuts,” and always assumed it was true.

There is a model of social knowledge embedded in this tweet. It implies a set of things that one believes to be true, a set of things one can admit to believing without being a “nut”, and an inconsistency between the two. Why the divergence? Oughtn’t it be true that people of integrity should simply own up to what they believe? Can a “marketplace of ideas” function without that?

It’s obvious, of course, why this divergence occurs. Will Wilkinson points to an economy of esteem, but there is also an economy of influence. There are ideas and modes of thought that are taboo in the economy of influence, assertions that discredit the asserter. Those of us who seek to matter as “thinkers” are implicitly aware of these taboos, and we navigate them mostly by avoiding or acceding to them. You can transgress a little, self-consciously and playfully, as Cowen did in his tweet. If you transgress too much, too earnestly, you are written off as a nut or worse. Conversely, there are ideas that are blessed in the economy of influence. These are markers of “seriousness”, as in Paul Krugman’s perceptive, derisive epithet “Very Serious People”. This describes “thinkers” whose positions inevitably align like iron filings to the pull of social influence, indifferent to evidence that might impinge upon their views. Most of us, with varying degrees of consciousness, are pulled this way and that, forging compromises between what we might assert in some impossible reality where we observed social facts “objectively” and the positions that our allegiances, ambitions, and taboos push us towards. Individually, there is plenty of eccentricity, plenty of noise. People go “off the reservation” all the time. But pubic intellectualizing is a collective enterprise. What matters is not what some asshole says, but the conventional wisdom we coalesce to. When the noise gets averaged out, the bias imposed by the economy of influence is hard to overcome. And the economy of influence pulls, always, in directions chosen by incumbent holders of wealth and power, by people with capacity to offer rewards and to mete out punishment.

I want to introduce a word into the discourse surrounding NSA surveillance that has been insufficiently discussed. That word is blackmail. I will out and say this. I think our President’s “evolutions” on questions of civil liberties and surveillance are largely the result of blackmail. I think it is not coincidental that support for the security state is highly correlated with seniority and influence, in both of our increasingly irrelevant political parties. The apparatus we are constructing, have constructed, creates incredible scope for digging up dirt on people and their spouses, their children, their parents. It doesn’t take much to manage the shape of the economy of influence. There are, how shall we say, network effects. You don’t have to blackmail the whole Congress. Powerful people are, almost by definition, people very attuned to economies of influence. They quickly detect the trends and emerging conventions among other powerful people and conform to them. A consensus that emerges at the top is quickly magnified and disseminated. Other voices don’t disappear, there is plenty of shouting in the blogs. But a correlation emerges between a certain set of views and “seriousness”, “respectability”. The mainstream position is defined. Eventually it’s reflected by the polls, so it’s what the American people wanted all along, we are just responding to the demands of the public, whine the politicians.

Blackmail is and has always been a consequential component of our political system. This ought not to be controversial. Blackmail — like its sister B-word, “bribery” — has largely gone mainstream and been institutionalized. “Opposition research” is a profession that is openly practiced and is considered respectable. Opposition researchers, like lobbyists, will tell perfectly accurate stories about the useful role served by their profession. The public deserves to know the truth about the people in whom it will invest the public trust. Legislators require information and expertise that only industry participants can provide. True, true! But these are, obviously, incomplete accounts of the roles that these professionals play. Lobbyists don’t simply inject neutral, objective information into the legislative process. And opposition research is used in ways other than to immediately inform the public. For both bribery and blackmail, there is a spectrum of vulgarity. A guy gives you a suitcase of hundred-dollar bills that you hide in your freezer in exchange for a legislative favor. That’s vulgar, and illegal. But the same gentleman hints in conversation that, should you ever choose to “leave public service”, his firm would be excited to hire someone with your connections and expertise — expertise which, it needn’t be said, ought naturally be reflected in legislative choices! — and that is tasteful, normal, legal. Those jobs are worth a lot more than a suitcase full of C-notes. Similarly, it is vulgar and unnecessarily risky to show up in a Congressional office with a dossier of compromising pictures, or the dossier documenting ones participation in a fraud. You just have to make it known that you know.

I’m going to excerpt a bit from a great, underdiscussed piece by Beverly Gage:

[J. Edgar] Hoover exercised powerful forms of control over potential critics. If the FBI learned a particularly juicy tidbit about a congressman, for instance, agents might show up at his office to let him know that his secrets—scandalous as they might be—were safe with the bureau. This had the predictable effect: Throughout the postwar years, Washington swirled with rumors that the FBI had a detailed file on every federal politician. There was some truth to the accusation. The FBI compiled background information on members of Congress, with an eye to both past scandals and to political ideology. But the files were probably not as extensive or all-encompassing as people believed them to be. The point was that it didn’t matter: The belief alone was enough to keep most politicians in line, and to keep them voting yes on FBI appropriations.

Today, James Bamford quotes a former senior CIA official, describing current spymaster Keith Alexander:

We jokingly referred to him as Emperor Alexander — with good cause, because whatever Keith wants, Keith gets… We would sit back literally in awe of what he was able to get from Congress, from the White House, and at the expense of everybody else.

Bribery and blackmail go together, of course. The carrot and the stick. It’s not just that bad things will happen if you don’t toe the line. If you do the right thing, who knows? You might be the next Dianne Feinstein. Or John Boehner. Or Barack Obama. Note that, despite my excesses in this regard as a writer, I did not place do-the-right-thing in italics or scare quotes. There is a third element in this recipe for influence: persuasion. People don’t like to view themselves as venal, corrupt, weak. Even the sort of person who ends up “senior in politics” has limits to how crass a view of themselves they will tolerate. Bribery and blackmail are omnipresent in the background, but in the foreground are spirited conversations, arguments over policy, arguments in which I suspect decisionmakers frequently start with the hardest possible line against the position they will eventually accept so that they can reassure themselves: they have been persuaded, it was not just the pressure. I accuse Barack Obama of having been effectively bribed and blackmailed on these issues, but if he ever were to respond, I suspect he would deny that fervently and with perfect, absolute sincerity. He was persuaded. He knows more now than he did then.

We humans are such malleable things. This is not, ultimately, a story about evil individuals. The last thing I want to do with my time is get into an argument over the character of our President. I could care less. The problem we face here is social, institutional. Bribery, blackmail, influence peddling, flattery — these have always been and always will be part of any political landscape. Our challenge is to minimize the degree to which they corrupt the political process. “Make better humans” is not a strategy that is likely succeed. “Find better leaders” is just slightly less naive. Institutional problems require institutional solutions. We did manage to reduce the malign influence of the J. Edgar Hoover security state, by placing institutional checks on what law enforcement and intelligence agencies could do, and by placing those agencies under more public and intrusive supervision. I think that much of our task today is devising a sufficient surveillance architecture for our surveillance architecture.

But as we are talking about all this, let’s remember what we are talking about. We are not talking about a tradeoff between “security” and “privacy”. That framing is a distraction. Our current path is to pay for (alleged) security by acquiescence to increasingly corrupt and corruptible governance. We ought to ask ourselves whether a very secure, very corrupt state is better than the alternatives, whether security for corruption is a tradeoff we are willing to make.

P.S. It’s worth pausing in this context to note with sadness the death of Michael Hastings yesterday in a car crash. Hastings was a person clearly trying to address corrupt power by placing it under aggressive public surveillance. It’s worth considering the lessons of Cowen’s quip about “nuts” before we profess to be certain of very much.

I want to comment on this widely discussed bit by Josh Marshall:

Let me put my cards on the table. At the end of the day, for all its faults, the US military is the armed force of a political community I identify with and a government I support. I’m not a bystander to it. I’m implicated in what it does and I feel I have a responsibility and a right to a say, albeit just a minuscule one, in what it does. I think a military force requires a substantial amount of secrecy to operate in any reasonable way. So when someone on the inside breaks those rules, I need to see a really, really good reason. And even then I’m not sure that means you get off scott free. It may just mean you did the right thing.

So do I see someone [Manning] who takes an oath and puts on the uniform and then betrays that oath for no really good reason as a hero? No.

The Snowden case is less clear to me. At least to date, the revelations seem more surgical. And the public definitely has an interest in knowing just how we’re using surveillance technology and how we’re balancing risks versus privacy. The best critique of my whole position that I can think of is that I think debating the way we balance privacy and security is a good thing and I’m saying I’m against what is arguably the best way to trigger one of those debates.

But it’s more than that. Snowden is doing more than triggering a debate. I think it’s clear he’s trying to upend, damage — choose your verb — the US intelligence apparatus and policies he opposes. The fact that what he’s doing is against the law speaks for itself. I don’t think anyone doubts that narrow point. But he’s not just opening the thing up for debate. He’s taking it upon himself to make certain things no longer possible, or much harder to do. To me that’s a betrayal. I think it’s easy to exaggerate how much damage these disclosures cause. But I don’t buy that there are no consequences. And it goes to the point I was making in an earlier post. Who gets to decide? The totality of the officeholders who’ve been elected democratically – for better or worse – to make these decisions? Or Edward Snowden, some young guy I’ve never heard of before who espouses a political philosophy I don’t agree with and is now seeking refuge abroad for breaking the law?

I, like Josh Marshall, identify very strongly with the political community called the United States of America. But for precisely that reason, my reaction is almost precisely the opposite of Marshall’s.

As a human being, it is very important to me to be good. But I am not meaningfully a human being as an individual. No one is, no matter how libertarian ones philosophy or how sterilely individualistic ones economic models. I do not identify with the political community called the United States like I might identify with a football team, hoping for victory against rivals simply because it is mine, my team. I identify with the United States of America as a vast and complex social and moral agent of which I have the privilege to be a part. I am elevated by my affiliation with, incorporation within, that community when it is a good community. I am diminished and pained and made nauseous when it is an evil community. Of course it is both, always, in various degrees, in my own shifting perceptions and those of others and in whatever unknowable objective reality might ever be ascribed to such a thing. But there are preponderances. A decade ago, my view was that the United States was, on the whole, in this imperfect realm of man, a good community. “The arc of the moral universe is long, but it bends towards justice, ” said Dr. King. I believed that about the United States, and I believed that about the United States’ role in the larger world. Now I hear various smug, self-righteous, powerful figures intone those words and I want to puke. In my tiny, flawed view — but I don’t think I am alone in this — the preponderances have shifted. As a community, our flaws are eclipsing our virtues. Men and women are imperfect, human communities are imperfect, but there are differences of degree and they matter. We are all born sinners, avaricious machines, selfish genes, but some work and strive and, to various degrees, perhaps even succeed at being better than they might be, and we should notice that, honor it. And when we are small and mean — perhaps without bad intentions but life is hard and the world is complex and we are buffeted by so many different forces, so many “incentives” — when we notice that we are small and mean, we should dishonor that, and work to change it.

In the 1980s, Ronald Reagan referred to the Soviet Union as an evil empire, and he was right to do so. That never meant that Russian people, individually, were bad people. That did not and would not justify anyone’s blowing up a Moscow apartment building, or attacking their soldiers, or any other prima facie awful thing. Violence in the service of good is not an impossible thing, perhaps, but it is a rare and very delicate thing at best. Violence ought never be justified in broad, sloppy brush strokes. Nothing would have justified a terrorist act against the Soviet Union, but it was a community whose moral character, with respect to both the lived experience inside it and its influence externally, was malign, and it was a matter of serious concern to people within and without that it should change. The community that was the Soviet Union is still evolving, and the jury is still out, as it will ever be, because human affairs are never permanent. For the sake of the people inside that community and for the sake of all the rest of us, we ought to wish them the best.

It pains me very much to say so, but the United States today is not a benign community. We have, over the last decade, undermined nearly all of the reasons that I, perhaps as a fool, thought distinguished us as virtuous, in our own particular way, despite our many flaws. A decade ago, I trusted our institutions, our government, our think tanks and university and third estate, our processes and our evaluations of our own competences, and supported what turned out to be a disastrous war in Iraq. Even though I observed what at the time were pretty obvious housing and credit bubbles, I believed our system was self-correcting, that those who fueled those errors would eventually be held accountable, economically and sometimes criminally, that we would suffer institutions to fall and titans to be shamed in order to preserve the integrity of our economy. I remember how ashamed I was when, in 2005, my then-girlfriend (now wife) came to visit the United States, and we were driving around with people on NPR debating whether torture was OK. Today my country holds people it has exonerated of wrongdoing in a tropical prison for indefinite terms because it cannot overcome the bureaucratic and political obstacles to letting them live, somewhere, the lives that they like each of us have been blessed with. Today my country sends remote control airplanes into a country we are not at war with and kills people it cannot identify in a program it assures us is “surgical”. When called to account for harm to noncombatants, it classifies “males of military age” as militants to keep the statistics flattering.

I am, and I will always be, a member of the political community called the United States of America. That is why these things pain me. The fact that I identify with this community does not mean I identify with the state, its government, its military institutions, even its civil society as presently constituted. I certainly want to identify with those things. I certainly used to identify with those things, ostentatiously and very proudly. In the community we all wish we belonged to, we would honor the state and the constellation of prominent institutions that surround it, banks and universities and newsmedia, as constituting a system of political and economic and necessarily moral governance that functions reasonably well, whose actors police and correct themselves when, inevitably, things go askew. I don’t think a reasonable observer can claim this describes the institutions of the United States right now. Laws are made of words. There is no rule of law in a society where Presidents argue over what “is” is, or claim “domestic” e-mails aren’t “targeted” to avoid discussing whether or not they are read. There is no rule of law when our leaders offer no language that meshes with commonsense reality, only phrases carefully parsed not to be caught out as outright lies while revealing as little truth as possible. There is no rule of law when members of incumbent power centers, in government or banking or the military, are almost never held to account for crimes that in ordinary life would be grave, while those they dislike are jailed naked and sleepless for the sin of betraying their secrets without any hint or allegation of malice.

Even in a good community, there is a role for secrets. I have taken some heat for defending, in principle, a role for opacity in banking, and would certainly defend a sphere of secrecy in diplomacy and governance. And it is always true that some cockroaches will thrive in the shadows. But though we may sometimes choose to blind ourselves, we ought not do so blindly. I might entrust my funds to a banker in promise of a sure return, but only if I have reason to believe, in the context of the web of institutions to which she belongs, she can be trusted to do reasonable things rather than steal the advance. I needn’t mislead myself that she is infallible. But I should know that in the unlikely event of a failure, it will be a virtuous failure, which in practice implies an accountable failure. Secrecy may be necessary, but it is intolerable without accountability, accountability in fact not in form. Our core institutions and the humans within them no longer hold themselves accountable for their large crimes, though they occasionally offer scapegoats from their ranks for small ones. They have evolved ingenious contrivances with elaborate rituals of accountability whose lack of substance is most invisible to the people enmeshed in them. This will kill us, is killing us, slowly and by degrees and not before it kills many other people. It is because I identify with my political community, because I do not exist except as a part of that community, that I am desperate to change this. I cannot be a good person, and I cannot be happy, when this is my polity.

The comfortable, “legitimate”, forms of accountability are failing, have failed. Whistleblowing is accountability by other means, and we need that, and ought to celebrate it. Our problem is not that it is done too frequently or too lightly. I might prefer Edward Snowden hadn’t gone to China(ish), but the health and virtue of my community is not a contest, not a rivalry with that or any other country. Contra Marshall, Snowden has “upended” nothing. Nothing he did prevents us from doing as much or as little surveillance as we, collectively, choose to do, and we may yet choose to do quite a lot of it. What Snowden has done is force us to own up, to stop pretending we are not doing what we all know we are doing, to stop pretending we do not know what is being done to us. It is on us, as a political community, to decide what we want to do and most importantly, how, on what terms, we want to do it. The people to whom we should listen the least are Dianne Feinstein and Barack Obama, John Boehner and Lindsay Graham, James Clapper. The tragedy is they probably have as hard time telling when they are lying as we do, they are so lost in it all. This isn’t their decision. This is our country.

I am in general a terribly constipated blogger. Actually, I don’t know whether I qualify as a “blogger” at all, given the infrequency of my expulsions. As I’ve developed a readership, I’ve come to consider publishing on this site a big deal, something not to be taken lightly. I abandon as many posts as I publish, and it’s rare that I publish a post on the same day I begin it. Sometimes it’s not even the same week. Though I love that people disagree, I feel terrible if I publish stuff that, after the fact, I myself decide is shoddy or mistaken. I feel terrible when I think I’ve misrepresented or failed to properly attribute other people, and usually make a time-consuming effort (which never turns out to be enough) to track down and link antecedents. More generally, though it may be cliché to say so, I know myself to be a total fraud, and self-censor a great deal in hope that you won’t notice.

My thoughts over the last week have not really been on helicopter drops or monetary policy or anything narrowly economic, but on a whole range of repressed concerns brought to the fore by the NSA scandals. If I try to express these with the restraint and care I’ve come to impose on my posts, I will just never express them. So I’m going to give myself license to be a lot more stream of consciousness, a lot more careless, over the next few days and just vomit into your RSS feed. I want to apologize in advance for the green chunks.

So, David Beckworth has a fantastic piece arguing that, in service of an NGDP target, the Fed might sometimes coordinate with the treasury to arrange “helicopter drops”, which Beckworth defines as” a government program that gives money directly to households”.

Scott Sumner quibbles, noting that

No country has been doing more “helicopter dropping” over the past 20 years than Japan. They’ve massively boosted both their national debt and their monetary base (which is what “helicopter drops” mean to economists.) And their NGDP is lower than 20 years ago. Not good.

Sumner is right that economists often use the phrase “helicopter drop” to refer to any sort of money-financed stimulus, that is, any government spending funded by bonds that are sold (directly or indirectly) to the central bank. That convention is unfortunate, as it obscures the clear intention of Milton Friedman’s original thought experiment, which involved helicopters and dollar bills and no government spending at all. Friedman’s musings concerned the notion of simply distributing money to humans, with no selection of worthies from unworthies or cronies from schlubs, and no government-directed flow of real resources.

Japan has been the king of “helicopter drops” under the money-financed government spending definition, but has never undertaken the sort of direct-to-household, unconditional transfers that Beckworth proposes. Beckworth is very clear that he supports heli drops precisely because “[f]iscal policy geared toward large government spending programs is likely to be rife with corruption, inefficient government planning, future distortionary taxes, and a ratcheting up of government intervention in the economy.” Direct, unconditional, uniform transfers to households are nearly immune to corruption and involve no increase in the degree to which government directs the use of real economic resources. (See this excellent piece by Matt Bruenig.) Japan’s fiscal policy, on the other hand, has been notorious for cronyism, and has directed oceans of sweat and concrete into infrastructure.

Sumner and Beckworth are simply using different definitions of “helicopter drop”. Sumner’s objections are less persuasive if we do Beckworth the courtesy of accepting his definition for the purpose of evaluating his proposal. Perhaps we should insist Beckworth use a less ambiguous phrase, or perhaps we should reject the conventional but unfortunate generalization of Friedman’s evocative thought experiment. But that semantic quarrel shouldn’t be allowed to seep into a substantative controversy.

Readers should note that I am not neutral in this argument: my position is very close to Beckworth’s. Although it’s not perfect, I’ve been persuaded (largely by Sumner!) that the best macro- policy we can hope for in the medium term is targeting an NGDP level path. Like both Sumner and Beckworth, I believe there are circumstances under which conventional monetary policy (defined as central-bank sales and purchases of obligations issued or guaranteed by the US Treasury) might not be sufficient to maintain that target. Sumner argues that we augment conventional monetary policy with negative 2% IOR (effectively a tax on bank reserves), and then no fiscal supplement would ever be necessary. He suggests that negative IOR would be preferable to direct-to-household transfers. Beckworth may or may not agree with that, but he is clearly open to the possibility of using transfers rather than negative IOR to supplement conventional policy, perhaps because he thinks transfers would be better policy, or perhaps as a concession to the political and institutional barriers that would have to be overcome before the Federal Reserve would impose negative rates. My view is that all tools have their place, but direct-to-household transfers are often preferable even to conventional monetary policy (while traditional fiscal policy — outright government spending — in general is not). Beckworth and I might quarrel a bit, but our disagreements would be over the magnitudes of various costs and benefits associated with direct-to-household transfers vs interest-rate policy and other interventions usually described as “monetary”.

It is something of a cliché, I hate to belabor the point, since everybody understands that Scott Sumner and Paul Krugman are practically twins in the blogosphere. But it does become tiresome to constantly read views that are nearly indistinguishable. When Sumner writes

Helicopter drops must be reversed in the long run, at the cost of distortionary taxation. Better to cut distortionary taxes today.

he assumes, as Krugman has, that eventually the monetary base will not be interest-bearing, or at least that there will someday be a significant opportunity cost associated with holding reserves. I think that assumption is mistaken. For the indefinite future, I believe the Federal Reserve will pay interest-on-reserves very close to or above the short-term Treasury rate, so that there will be no opportunity cost to holding bank reserves. (This is the so-called “floor system“.) If I am right, then there will never be a need to reverse transfers via “distortionary” taxation. Instead, in a better economy, the transfers will be sterilized by raising interest on reserves. That doesn’t mean the transfers are costless. In “ordinary” times, we assume (without much evidence) that the macroeconomic cost of government spending is high interest rates, which hinder growth-enhancing private investment. In an economy which has recovered after Beckworth-esque helicopter drops (and which has not reversed the transfers via taxation), an inflation- or NGDP-targeting central bank might need to impose interest rates higher than they would have imposed absent the expansion of the monetary base. Higher interest rates would exact a toll. But that toll would be no more “distortionary” than conventional interest rate policy by central banks.

So, in ordinary times, helicopter drops might not be a free lunch. But at present they almost certainly would be. Sumner may argue that our current problems result from a lack of determination or nerve at the monetary authority, and perhaps he is right. But whether due to economic law or human foible, moments where zero is an insufficiently low interest rate to achieve a desirable NGDP path without supplementary policy seem… irksome. People lose jobs, suicide rates spike, things get double-plus ungood. An intervention whose “cost” was to raise the “natural” rate of interest above zero would be welcome in practice, even though it would render uneconomic some real investments that would be profitable at very low hurdle rates. The “cost” of fiscal policy under a floor system — higher future interest rates — becomes a benefit, all things considered, if it pushes us into a more comfortable, prudence-rewarding, positive-interest-rate world. General fiscal may be undesirable for fear of corruption and misuse of real resources, but Beckworth’s heli drops avoid all that. [1]

This conversation was provoked by an excellent Cardiff Garcia article, with whose spirit I very strongly agree. It’s all very fun to draw lines and spit across them. But letting differences divide “monetarists” and “fiscalists” is letting divergent conceptions of perfect become the enemy of the good. In a market monetarist’s perfect world, the fiscal multiplier is zero, but we all agree that’s not necessarily the case here in purgatory. In a fiscalist’s perfect world, a sluggish economy is an opportunity to produce valuable public goods costlessly, but in practice our political system may be too broken or corrupt to deliver. I applaud Beckworth for offering a plan we could implement without assuming the can opener of institutions much better than those we actually have.

Notes:

[1] If the distribution of market income is sufficiently concentrated, I worry that “helicopter drops” might fail to create conditions that allow a target-disciplined central bank to raise interest rates. In narrow fiscal terms a certain sense, that would render permanent heli drops a free lunch, so yay. However, permanent heli drops that are broadly distributed but accumulate to a narrow class might lead to expanding inequality, financial instability, and social mayhem, unless countered by the “T”-word that economists find so distortionary.

Update: Reading through the comments, I think it worth distinguishing between “a fiscal cost” and the “cost of fiscal policy”. Helicopter drops are most certainly fiscal policy (thanks JKH), and they have a fiscal cost in an accounting sense. If helicopter drops are arranged as Beckworth suggests, via an Fed/Treasury coordination, then public debt explicitly rises. If they are implemented as direct transfers from the central bank, then the obligations of the central bank increase, which is a cost to the Treasury as the beneficial owner of the central bank’s cash flows. (The US Fed’s “private shareholders” lay claim to only a small, fixed dividend.) Helicopter drops are fiscal policy.

However, this piece is mostly concerned not with fiscal costs in an accounting sense, but the real cost of fiscal policy. Suppose, as I fear in the footnote, that helicopter drops put no durable pressure on inflation or NGDP, so that an inflation- or NGDP-targeting central bank is not compelled to raise interest rates in response. The helicopter drops are still fiscal policy, they still have some kind of accounting cost to the Treasury or the central bank or both. (This cost may or may not be offset in the accounts by some intangible asset, but let’s leave that aside for now.) However, if this “fiscal cost” does not affect prices or interest rates, it has no real cost to the economy in the sense of displacing or “crowding out” private sector investment.

Let’s imagine heli drops implemented qua Beckworth, via Fed/Treasury coordination, because it simplifies the accounting. Suppose the helicopters fly, everybody receives some cash, but they deposit the funds, in banks or mattresses, with no effect on actual expenditures. NGDP is then unaffected. Public debt to GDP rises. But there is no real-resource cost to the program, no displacement of investment by consumption, nothing that prevents the helicopter drops from continuing uselessly but indefinitely without harming the economy (except for fear of arbitrary debt-to-GDP thresholds). Alternatively, suppose everybody takes the money and spends it on goods, and the recipients of those expenditures are also inclined to spend, etc so that there is a large multiplier: one dollars of helicopter drops leads to many dollars of actual exchange. Real resources remain constrained, so an inflation- or NGDP-targeting central bank would be forced to raise interest rates to persuade some people to hold rather than spend the new money rather than bid-up prices or expand NGDP past the target. High interest rates mean high hurdle rates for real investment projects. Investment expenditures are effectively curtailed to make room for the additional consumption enabled by the heli drops. That displacement is the real cost of the policy. When the central bank’s target binds, fiscal spending today (heli drop or otherwise) has a cost in future production and therefore growth.

In general, this is the nature of a currency-issuing government’s budget constraint. A government can spend what it likes, there is no limit to the quantity of obligations it can issue. The cost of the issuance is paid either in inflation or high interest rates, both of which are thought to exact a toll on the quality and growth of the real economy. Fiscal policy that does not put pressure on nominal expenditures and so force an inflation/interest-rate tradeoff is still fiscal policy, still “costly” in a government accounting sense, but has no real cost in terms of diminishing resources deployed for future growth. It might still have more subtle costs in terms of distribution and financial stability, which is why I describe this “costless” scenario as something to be feared more than hoped-for in the footnote.